One part of the SRT for which callers come for clarity or reassurance is split year treatment. That’s not surprising because the SRT prescribes eight cases with a set of detailed conditions that must be satisfied. Unless the client’s circumstances fit at least one of those cases, there will not be a split year. Every year that a SATR is being prepared for a client where there is any doubt about their residence position, the SRT needs to be applied carefully to their specific set of facts. For practitioners having only a few clients whose residence position is uncertain, the split year provision can be bewildering, but experience on the advice line shows that there are some common points of confusion around split year. This brief article aims to dispel some of those stumbling blocks.
The legislation is consistent in referring to the “overseas part” and “UK part” of the year. Quite often in calls to the advice line, those labels have been replaced with a “non-resident part” and a “resident part” of the tax year when the caller sets out the question. It’s worth making the effort to consistently use the language of the legislation as it is a reminder of two important truths about split years:
1. The individual is resident for the whole year, with the treatment of income and gains being modified in the two parts.
2. Split year modifies how UK tax applies to the individual in the year for some purposes but not all.
The first point makes it immediately clear that entitlement to personal allowances is unaffected by a split year for either someone coming to the UK or departing from the UK.
A split year (no matter how short the UK part) is no different from any other year of residence when counting years of residence for a non-domiciled individual to see if they must pay a charge to use the remittance basis or to see if they have become deemed to be domiciled in the UK.
Similarly, the limit on income tax liability that is work out by excluding the individual’s disregarded income (S.811 ITA 2007) is of no benefit in the overseas part of a split year because that is part of a year when he or she is UK resident.
There are many more details to the eight cases for split year than can be covered here but the Direct Tax Reporter on the Croner-I platform deals with the cases that might apply to someone who is leaving the UK at 199-212 and the cases for someone arriving in the UK at 199-220. The point at which each case splits a year is summarised at 199-246 and the priority rules applying when more than one case applies are set out at 199-218 (for leavers) and 199-230 (for arrivals).
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